Ship Finance and Mortgage Enforcement in China: The 2025 Maritime Code

Introduction

A lender that finances a vessel trading into China holds its security in a place where three different claims can stand in front of it: the maritime lien, the possessory lien and the ship mortgage itself. The question that decides whether the lender is repaid is not whether a mortgage was signed but whether it was registered, and where it ranks when the vessel is arrested and sold. China has just rewritten that rulebook, so the answer every lender memorised a few years ago is now out of date.

The 2025 Maritime Code: What Changed and When It Bites

The Maritime Code of the People's Republic of China was revised by the Standing Committee of the National People's Congress on 28 October 2025 (promulgated as Presidential Decree No. 58) and took effect on 1 May 2026 — it is now the law in force, replacing the 1992 Code that had governed Chinese maritime law for over three decades. For a ship financier the headline changes are in the security chapter: the rules on the creation, registration and priority of ship mortgages have been recast and renumbered. Anyone relying on the old article numbers — in particular the old priority provision — will cite the wrong provision. The practical entries are now Articles 11 to 20 (the ship-mortgage provisions), and the priority ranking now sits in the closing paragraph of Article 30, not in the old Article 25.

Creating a Valid Ship Mortgage: Written Contract, Then Registration

Under the revised Code, a ship mortgage must be created by a written contract — the current provision is Article 12 — and registration is what gives the mortgage its real force. Article 13 states the familiar rule in Chinese shipping practice: a ship mortgage that is not registered may not be asserted against a bona fide third party (未经登记, 不得对抗善意第三人). The mortgage attaches against the parties when the contract is made; it binds the rest of the world only when it is registered with the competent authority. For a foreign lender, that means the moment between signing the credit documents and completing registration is the dangerous window — in it, a competing registered mortgage, or a subsequent buyer who takes in good faith, can defeat the unregistered security. Registration is the single step that converts a contractual promise into a property right.

The Priority Queue: Lien First, Possession Second, Mortgage Third

When a vessel is arrested and judicially sold, the proceeds are distributed in a fixed statutory order, and the mortgage is not at the top of it. Under the closing paragraph of Article 30 of the revised Code the ranking is:

• Maritime liens (船舶优先权) rank first — the privileged claims such as crew wages, death and personal injury, tonnage dues and port charges, and salvage, which attach to the vessel and follow it regardless of registration.
• Possessory liens (船舶留置权) rank second — the claim of a shipbuilder or repairer who is in possession of the vessel for work done on it.
• Ship mortgages (船舶抵押权) rank third, behind both.

This is the ranking that surprises lenders who think of a mortgage as first-priority security. A mortgage on a Chinese-flag vessel is a claim on the residue after the liens and possessory liens are satisfied, which is why a lender must model the size of the likely lien claims — unpaid crew wages and port charges accumulate fast on a distressed vessel — before it assumes its security is worth what the loan book says.

Enforcing: Arrest, Auction and Where the Mortgagee Stands

Enforcement against a vessel in China runs through the maritime courts, not through self-help. The mortgagee applies for arrest of the ship, then pursues a judgment or arbitral award, and ultimately a judicial auction of the vessel. The mortgagee is a secured claimant in the distribution, but its recovery is capped by two facts: it takes after the maritime liens and possessory liens, and the auction proceeds are divided among all recognised claims in their statutory order. A lender that also holds a maritime lien position — for example, through an advance of funds to pay crew wages — can improve its place in the queue, which is why structured ship finance in China frequently pairs the mortgage with a wages advance or a similar mechanism. For the mechanics of arrest and cargo claims in practice, see Shipping Disputes: Cargo Claims and Vessel Arrest in China, and for the general framework, Chinese Maritime Law: A Practical Introduction for Foreign Parties.

Practical Points for a Foreign Lender

• Register immediately. The window between contract and registration is where an unregistered mortgage loses to a bona fide third party under Article 13.
• Model the liens. Crew wages, port charges and salvage rank ahead of the mortgage — size them before you lend, not after the default.
• Check the flag and the forum. The revised Code applies to Chinese-flag vessels and Chinese-nexus transactions; confirm which law governs your mortgage and which court can arrest the ship.
• Consider standing in the lien queue. Advancing funds to clear wages can put the lender in a position ahead of a bare mortgage.
• Cite the current provisions. The 2025 Code renumbered the security and priority rules — build your documents on Articles 11 to 20 and the closing paragraph of Article 30, and confirm the current text before relying on any older drafting.

How Tianni Law Firm Can Help

Tianni Law Firm (江苏天倪律师事务所), based in Nanjing, Jiangsu, advises foreign lenders, shipowners and yards on Chinese ship finance — structuring and registering ship mortgages under the revised Maritime Code, modelling lien exposure, and enforcing security through arrest and judicial auction before the maritime courts. This article is general information, not legal advice; the 2025 Maritime Code and its implementing rules continue to be applied and elaborated, so confirm the current official text and judicial practice before structuring or enforcing security.